Use Sense with Student Loans

According to a recent survey, 57% of millennials regret how much they borrowed for college.1 This doesn't mean they regretted going to college or borrowing at all, but rather that it may be wise to carefully consider the amount of any loans a student might need for higher education.

The numbers can be daunting. In the 2014–15 academic year, 61% of bachelor's degree recipients from public and private nonprofit institutions graduated with an average debt of $28,100. About 5% of borrowers with outstanding student loan debt (including borrowing for graduate school) owed $100,000 or more.2

Cost-Benefit Analysis

On average, college graduates earn more over their lifetimes and have a lower rate of unemployment than those with less education.3 However, not all college degrees lead directly to a well-paying job. You and your student might weigh the debt necessary to fund a specific educational path against a realistic assessment of the earnings potential after graduation. For example, a student pursuing an engineering degree may be comfortable borrowing more than a student pursuing an education or liberal arts degree.

Although too much debt can be suffocating, manageable loans not only could help the family but may help the student feel more invested in the pursuit of education. How much is too much? One guideline suggests that a student borrow less than his or her projected annual starting salary after graduation. Although every situation is different, keeping borrowing to that level should enable the graduate to pay off the loan in 10 years (or less), the standard loan repayment period for federal student loans.4

If your student will have to borrow more than he or she could comfortably repay, consider lower-cost alternatives such as a community college for the first two years. You might also explore a degree path that is more likely to yield higher earnings in the future. Of course, increasing your college savings could provide more options for your student and reduce the need for loans. In the class of 2015, 39% of students graduated with no debt at all.5 That's a good way to start a career.

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